Competition heats up over EU southern gas corridor

Austria joined the Gazprom-sponsored South Stream gas pipeline project on 24 April, marking the beginning of a new phase of competition between the pipeline and its rival Nabucco, which is designed to bring gas to Europe from sources other than Russia.

Russian Prime Minister Vladimir Putin, who presided over the deal in Austria, said supplies of Russian gas to Austria would increase by two billion cubic metres a year after South Stream's launch.

Austria, which gets 60% of its gas from Russia, became the seventh country to sign on to the 900-kilometere South Stream pipeline, following Croatia, Bulgaria, Serbia, Hungary, Greece and Slovenia.

Putin took the opportunity to mock ongoing preparations for the rival, EU-sponsored Nabucco project, the Russian press reports.

"Before constructing something, one should sign supply contracts. Construction of the pipeline without contracts is dangerous and makes no sense. Name me just one contract for Nabucco," said Putin, according to the Russian government website.

Austrian Chancellor Werner Faymann said he did not see a conflict between Nabucco and South Stream, adding that Austria, which also supports Nabucco, was interested in different ways of diversifying its gas supply.

"And we don't know yet if there will be gas supplies via Nabucco," he told the news conference.

Nabucco starts tendering process

Meanwhile on Friday (23 April), the day before the Vienna ceremony, the Nabucco consortium launched a tendering process for items needed to start building the pipeline.

Nabucco Gas Pipeline International launched the pre-qualification process as the starting phase of a 3.5 billion euro procurement process for items such as pipes and valves, the company announced in a written statement.

"Long lead items – like pipes and valves – are the cornerstone of pipeline construction, and account for a considerable proportion of overall investment costs. The prequalification process will identify the most eligible companies and is the basis for a successful procurement process," Nabucco Managing Director Reinhard Mitschek is quoted as saying.

The route corridor was recently selected for the first phase of the project. Meanwhile work to secure right of way and permissions for environmental and social assessments, as well as construction permits in Nabucco countries, is currently in progress, the consortium further announced. The first gas is expected to flow by the end of 2014.

The Nabucco pipeline is expected to cost 7.9 billion euro to build. Although seen as a flagship EU project, its advance has been slow and exotic ideas have been put forward for partly merging it with the rival, Gazprom-favoured South Stream project (EURACTIV 11/03/10).

Ukraine suggests scrapping South Stream

During a recent meeting with Russian President Dmitry Medvedev, Ukrainian President Viktor Yanukovich suggested that instead of investing in South Stream, Gazprom would be better off building additional pipelines across his country (EURACTIV 22/04/10).

In the meantime, suggestions have been made to partially merge Nabucco and South Steam, with Nabucco abandoning its previous plans to bring gas solely from sources other than Russia (EURACTIV 11/03/10).

"South Stream looks expensive, technologically complicated and unnecessary. Nabucco appears relatively realistic and it is further advanced in the planning process. The EU should call the Russians' bluff by asking Gazprom to use Nabucco to ship gas into South and Central Europe," wrote Katinka Barysch, deputy director of the Centre for European Reform, recently.

Background

Up to now, two competing planned gas pipelines, Nabucco and South Stream, have had similar terms for beginning of construction and completion.

South Stream is a planned natural gas pipeline bypassing Ukraine, running under the Black Sea to Bulgaria, with one branch going to Greece and Italy, and another one to Romania, Serbia, Hungary, Slovenia and Austria. Russia recently announced that it would more than double its planned capacity from 31 billion cubic metres per year (bcm/y) to 63 bcm/y (EURACTIV 18/05/09; EURACTIV 25/05/09).

Another pipeline in the project phase, Nabucco, does not enjoy the favour of Russian state monopoly Gazprom. It widely resembles South Stream, but is intended to diversify the EU's pool of supplier countries, bringing gas to Europe from the Caucasus and the Middle East to a gas hub in Austria, via Turkey, Bulgaria and Romania.

The Nabucco consortium comprises leading European energy companies: OMV of Austria, MOL of Hungary, RWE of Germany, Bulgargaz of Bulgaria, Transgaz of Romania and Botas of Turkey. But three consortium members - OMV, MOL and Bulgargaz - have already signed up to Gazprom's South Stream pipeline, raising questions about potential conflicts of interest and indeed their commitment to Nabucco.